Betfair or not?

commentary One of Australia's most closely regulated industries is being stalked by the lethal combination of an ambitious Internet business and one of Australia's richest and most powerful men.The recent signing of a provisional AU$20 million deal for a 50:50 joint venture between Kerry Packer's Publishing and Broadcasting Ltd and the United Kingdom-based online betting exchange Betfair to operate in Australia has sent shockwaves through the racing industry.

commentary One of Australia's most closely regulated industries is being stalked by the lethal combination of an ambitious Internet business and one of Australia's richest and most powerful men.

The recent signing of a provisional AU$20 million deal for a 50:50 joint venture between Kerry Packer's Publishing and Broadcasting Ltd and the United Kingdom-based online betting exchange Betfair to operate in Australia has sent shockwaves through the racing industry.

(The deal is contingent on Betfair receiving licences to operate here. PBL is known to be somewhat wary of the Internet gambling market, having lost several million dollars when its crowngames.com site folded after legislators in the US made unfriendly changes to credit laws. The involvement of Packer and PBL in the Betfair push has sparked a barrage of commentary from local influence peddlers, entertainingly outlined here on the Australian Broadcasting Corporation's Media Watch Web site ).

Betfair has already run into heated opposition from elements of the AU$15 billion industry -- most notably TABs and regulated bookmakers -- over its moves, kicked off in early 2003, to directly enter the Australian marketplace. However, despite the intensity of its push, the industry has not been entirely successful. The federal government recently elected not to close a loophole in the Interactive Gambling Act 2001 that allowed Betfair to service Australian events.

The Betfair model is a seismic shift from existing gambling models. The company operates on a peer-to-peer basis, under which members with opposing views can bet against each other -- dictating their own odds -- that an event will or will not happen. In short, members can bet on losers as well as winners. Betfair's role is purely that of facilitator and the company earns its revenues by levying a 5 percent fee on all winnings. Australian punters wager around AU$5 million per year using the service.

The TABs and regulated bookmakers -- backed by their international counterparts -- have unleashed verbal hell on Betfair, with tactics ranging from hard-hitting newspaper advertisements to reportedly describing betting exchanges as "the root of all evil" and a platform for race-fixing, corruption etc etc. Even the Wesley Mission got involved, with gambling and financial services counseling head Chester Carter claiming the advent of Internet betting exchanges could cause further difficulties for problem gamblers.

According to some analysts, the company is unlikely to get a licence for wagering products -- horse racing, harness racing, greyhound racing and the like -- with the power of the racing lobby and the weight of tax revenue unlikely to see any change to the status quo. However, they say, it may gain access to the rapidly-growing sports betting marketplace -- whereby bets are taken on codes such as Australian Football and rugby league.

Still, Packer and PBL have a history of getting their own way. If they do and Betfair gains unrestricted access to the Australian market, the racing community faces a sharp lesson in the power of the Internet to transform industries.

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